About Short Sales
So how did we get here? Some statistics indicate that during 2004 through 2006
- 27% of consumers purchased their homes with less than 5% down
- 19% of consumers purchased their homes with 0% down
- 31% of all mortgages that were issued during that time contained loan products that were based on “alternative lending programs,” or in other terms, adjustable rate mortgages.
The seller basically has three options which include a Short Sale, Deed In Lieu of Foreclosure and Foreclosure.
Short Sale – A “short sale” occurs when a property is sold and the lender agrees to accept a discounted payoff of the loan. This means that the lender will release the mortgage lien that is secured by the property, upon receipt of less money than is actually owed on the loan.
Deed In Liew of Foreclosure – A “deed in liew of foreclosure” is an instrument used to transfer title from the owner of an encumbered property to the lender (or mortgage holder) of the property. The acceptance of the deed in liew of foreclosure by the lender or mortgage holder is a full and final satisfaction of the seller/borrower’s mortgage loan and the lender can not sue the seller/borrower for any deficiency.
Deficiency – is a term used to define the difference between the amount owed on a property and the amount a buyer is willing to pay for the property in it’s current market.
Foreclosure – A foreclosure property is a property in foreclosure (meaning a notice has been filed with the public records of a default on a loan). Florida is a judicial foreclosure State. What this mean is that the mortgage company can not sell the property out from under you if you fail to pay, unless they have first gone through the judicial court process to get permission to sell the property. The average time period in Walton County from the date the borrower receives the notice of foreclosure to the completion of the judicial sale is approximately 8-9 months.
Factors to consider regarding Short Sales
- When the outstanding obligations (loans) against a property are greater than the amount the property can be sold for in the current market.
- The Borrower wants to avoid foreclosure.
- The Borrower does not have the money or other assets to sell to make up the difference between what is owed and the amount of net proceeds from the sale.
Benefits of a Short Sale
- Allows the borrower to get on with their lives and avoid Foreclosure and/or Bankruptcy.
- MAY preserve Borrower’s credit worthiness, depending on the Lender’s guidelines.
- Allows the Lender to get a defaulting loan off their books.
- Acts as an alternative to the Lender incurring the costs of foreclosure and the carrying costs of the property until a resale can be obtained.
When is the best time to attempt a Short Sale?
- When foreclosures are on the rise and lenders are flooded with collateral properties they have been forced to take back.
- When the subject property is in the pre-foreclosure stage of non-payment.
Pre-foreclosure comes in two stages:
- The first stage being those individuals who are behind on payments.
- The second stage are those who are behind on payments and have received a notice of default (after third month).
What should a Buyer consider when putting an offer in on a Short Sale?
Buyers need to be aware that short sales do take time. When an offer is made it must first be signed by the current owner of the property. Since the lender doesn’t own the property outright yet, the current owner still must accept the offer. Once the offer is accepted by both parties, it is then delivered to the Lender who makes the final decision on whether or not to accept the offer. This process can take two months or longer, depending on how busy the Lender may be. Also note that once the Lender receives an offer, they must process the paperwork through multiple departments and receive either a Broker Price Opinion or appraisal. Sometimes both.
Buyers that need to purchase a property in a reasonable timeframe may find that short sales are not for them. However, when dealing with short sales, have your real estate agent find out if they have a direct contact with someone at the Lenders office. This may speed up processing time on the lenders side.
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